Don’t forget these costs when buying a home

Buying a home is a little like playing a game of chess. It takes a certain amount of strategy to negotiate an offer, and there are lots of moves you have to make before you can officially become a homeowner. Having a plan can make it easier to score a real estate checkmate.

Part of that plan should include carefully tallying up the costs beforehand. Running into unexpected homebuying costs when purchasing a property could easily derail your homebuying dreams.

“Budgeting homebuying costs is certainly one of the hardest challenges,” says Artur Muller, founder and CEO of a luxury real estate group located in Lighthouse Point, Florida. “Most first-time homebuyers think that they only have to come up with the down payment, and that’s absolutely wrong.”

While your down payment is certainly important, it’s not the only thing you’ll be spending on (or saving for). Getting mentally—and financially—prepared for the hidden costs of buying a home can help you avoid any snags along the way.

With that in mind, don’t forget these costs when buying a home:

1. Earnest money

If you’re a first-time buyer, earnest money may be one of the first unexpected homebuying costs you encounter. This is a good faith deposit made after your initial offer is accepted.

Cedric Stewart, CEO of a real estate franchise located in Rockville, Maryland, says the general rule of thumb for earnest money is 1 percent of the sales price. In hot markets, however, that may not cut it.

“Listing agents and sellers may expect between 3 and 5 percent in earnest money to show that a buyer is serious,” Stewart says.

If you’re not sure how much earnest money to offer, it may be better to err on the side of caution and budget a higher amount. If you end up needing less earnest money, you can hold the extra in reserve to pay for other unexpected homebuying costs.

2. Appraisal fee

Another one of the costs associated with buying a home is the appraisal fee. Before your lender can approve your mortgage, they’ll need a professional appraisal showing how much the home is worth. As the buyer, you’re responsible for paying the appraiser’s fee. 

“Expect to budget between $300 and $700 for an appraisal, depending on the size and complexity of the property,” says Romana King, content manager for a Canada-based property listing website.

In most cases, you’ll only pay the appraisal fee once, but if the home doesn’t appraise at a high enough value to satisfy the lender, you may need to get a second opinion. Don’t forget these costs when buying a home if you think additional appraisals may be needed.

3. Inspection fees

As you’re considering the costs associated with buying a home, don’t forget the inspection. Although an inspection is not required, it’s a good idea to have one. Similar to the appraisal, you’ll bear the cost yourself, so don’t forget to budget for this fee. Every homebuyer should consider at least two types of inspections, King says.

The first is a standard home inspection. An inspector assesses the overall condition of the home you want to buy—including the roof, wiring, and the heating and air conditioning system—to make sure everything is in good working order. The average home inspection cost is $341 as of June 2022, according to this home improvement planning website.

You may also want to have a separate inspection for termites. This has its own fee, so don’t forget these costs when buying a home.

“A termite inspection can provide insight into past damage that could compromise the home’s foundation or structure,” King says.

On average, a termite inspection that is part of real estate closing costs may add another $65 to $100 to your budget, according to CostHelper, Inc. That could be money well-spent if you want to avoid fixing major damage, which can lead to costly and unexpected expenses when buying a home.

4. Closing costs

While having to pay closing costs may come as no surprise, the amount you have to pay can easily be one of the largest hidden costs of buying a home. Plus, closing costs are on the rise. According to a survey from a property insights and solutions provider, closing costs (with transfer taxes) for a single-family property rose 13.4% in 2021.

Closing costs are typically between 2-5% of the loan amount, according to a mortgage reporting website. However, consumers might not have to pay that much out-of-pocket.

“You can ask the seller to offer a credit toward closing costs,” Muller says. Essentially, the seller credits you a certain amount of money, which is added to the sales price. When you buy the home, the difference—between that higher sales price and decreased closing costs—is credited to you at closing, meaning less money you have to outlay. The closing costs are effectively financed into your mortgage.

5. Moving expenses

One of the costs associated with buying a home that sometimes gets overlooked is the expense of moving your stuff. Once you’ve sealed the deal and the home is yours, the next step is moving your boxes and furniture from your old home to your new. While you may be anticipating a move, the cost may take you by surprise and is an expense not to forget when buying a home.

Muller says budgeting for a move depends on several factors. “Are you using a moving company?” he says. “How much furniture do you have? How far will it need to be moved? These are all important questions to ask.”

As you’re looking for ways to save money with your move, you should be ready to do some comparison shopping to find the best rates on hiring professional movers or renting a moving truck if you plan to handle the move on your own. Don’t forget to factor in the cost of renting a storage unit if that’s something you’ll need as you make the transition to your new place.

6. Utilities

You’ll need basics like electricity and running water at your new home, and you may want extras like cable TV or Internet service. Don’t forget these costs when buying a home.

Stewart says homebuyers should be aware that they may have to pay deposits for utilities if they’re establishing services for the first time. If you have poor credit, some companies may require a larger deposit, so plan ahead for these unexpected homebuying costs.

To avoid any service interruptions, remember to have your services transferred into your name on or before the day of closing, even if you aren’t moving in right away. Sellers are not obligated to leave these services on, so you need to plan ahead to make sure you’re not spending a dark first night in your new home.

7. Furniture and household items

You may think you have everything you need to set up house but inevitably, there are going to be things you’ll need to buy. You might need a new microwave or other appliances if the seller decided not to leave them behind. Then there are smaller things like blinds, new light bulbs, or extra cleaning supplies.

These are all important homebuying costs to remember when you’re tallying your total cost of buying a home. Don’t forget to factor in the costs of adding personal touches.

“One joy of moving into a new place is getting to decorate it and make it your own space,” King says. But if you’re starting from scratch and buying new, the costs can quickly escalate.

Using a cash back rewards incentive could help you save on home purchases. Nevertheless, you still have to be smart about how you use them.

“Using a credit card and not paying the balance in full isn’t a good strategy if you’re paying a high interest rate,” King says.

8. Upgrades and repairs

One final category of expenses not to forget when buying a home is renovations and repairs.

An inspection can catch major flaws such as a leaky roof, but it doesn’t account for livability, says Aaron Norris, vice president of a real estate investment firm located in Riverside, California.

“Making something a home is a different story,” Norris says.

The amount you budget for things like appliance repair or replacement largely hinges on the condition of the home.

“Even if a home is brand new, I always assume there will be at least $5,000 worth of upgrades to make certain it’s right,” he adds.

Plan ahead and don’t forget these hidden costs of buying a home

With so many unexpected homebuying costs, it may be helpful to open an online savings account as you’re creating your homebuying budget. From there, you can figure out how much you’ll need to set aside each month to ensure you’re ready for homeownership and able to make your real estate checkmate move. The more prepared you are to pay for the hidden costs of buying a home, the better it will be for your bottom line.

Now that you know the hidden costs of buying a home, learn how to stay on track with your finances and goals with this financial checklist. 

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